California ready for New Economy

March 19, 2007

Updated Aug. 21, 2013 1:17 p.m.

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WALL OF FAME: The 28 employees of USGI, each with their own framed image and saying, background, are individuals working as a team under the leadership of CEO Eugene G. Chen. DANIEL A. ANDERSON, THE ORANGE COUNTY REGISTER

California is among the top five states successfully transitioning to the new global, entrepreneurial economy that rewards knowledge, technology and innovation.

That's the overall good news from a new report, "The 2007 State New Economy Index," from the Kauffman Foundation, a Kansas City-based nonprofit that promotes entrepreneurship worldwide, and The Information Technology & Innovation Foundation, a Washington, D.C., public policy think tank.

The study ranks the states on 26 indicators within five major categories: Innovation capacity, economic dynamism, digital economy, knowledge jobs and globalization.

California ranks high in the first two categories and average to poor in the other three. The state has slipped from 2nd in previous studies in 1999 and 2002 and has some worrisome weaknesses as well as world-class strengths.

Despite the state's reputation for technological advancements, it ranks 48th out of 50 states on technology in the schools. It also ranks low in percent of the population that uses the Internet and education level of its immigrants.

"At the macro level, California has a good ranking… thanks to investment made in the 1950s and 1960s," said Robert Atkinson, the report's lead author. "But it shouldn't be resting on its laurels."

This study is significant because the economy is in the midst of a transformation as significant as when workers moved from farms to factories at the turn of the last century.

This "new economy" is creating new industries and occupations and scuttling old ones. It is driven by a revolution in information technology and brings with it greater competition from all over the world.

The winners in this transformation will be the nations - and within this country, the states - that best embrace technology and innovation in their products and services, according to the report.

"The five categories are the real drivers of economic growth," Atkinson said. Past studies "have been good indicators of income growth in the economy, high-wage jobs. That's why this is important" to the nation's future.

CALIFORNIA'S STRENGTHS

The report reflects California's current leadership in the transformation to a knowledge-based economy, said Chapman University economist Esmael Adibi in Orange.

"Fifth is not bad," he said. "The Internet decline (in 2000) hurt us quite a bit. But fundamentally, California is home to most venture capitalists, which backs innovation and entrepreneurship."

Indeed, California ranks at or near the top in venture capital as a percent of workers' salaries, industry investment in research and development, patents, use of broadband telecommunications and initial public offerings.

"Between the Silicon Valley and Southern California, remarkable new technologies are coming out," said Eugene Chen, chief executive of USGI Medical, a San Clemente pioneer in gastrointestinal surgery without incisions. "Venture capitalists are driving that."

USGI Medical is a good example of that leadership. The company has received $38 million in venture capital and has about six issued patents, and 75 patent applications.

"I look at innovation created by small, entrepreneurial companies," he added, " and there are three places in the country with the mentality and access to finances to make that happen: Northern California, Southern California and New England."

In the New Economy report, Massachusetts ranked first and Connecticut sixth.

While California has slipped in the rankings, New Jersey and Maryland have risen significantly, Atkinson said.

Some states' economies struggled so they had to invest in technological change, he said. "California has had the luxury of not making those investments. Location and amenities are no longer enough" to assure future success.

Category

National Ranking

Inventor patents

1

Venture capital (% of workers' salaries)

2

Broadband telecommunications

2

Initial public offerings

3

Corporate patents

4

Internet domain names per company

4

Industry investment in research & development

5

Source: The Information Technology and Innovation Foundation

CALIFORNIA'S WEAKNESSES

Adibi also expressed caution about California's direction.

"There are other states with better business environments," he said. "California could lose out in the future."

California scored below the national average on seven of the 26 indicators in the New Economy report, including the percentage of the population that is online (56.8 percent compared to 58.7 percent nationally) and educational level of immigrants, which is a measure of workers in high-wage "knowledge" jobs vs. low-wage service jobs.

Most troubling to California experts is the near-the-bottom ranking of the integration of information technology into schools, which combines three measures of Internet and computer usage.

"That obviously signals a place for improvement, not only in the number of students pursuing computer science careers, but in overall computer literacy," said Chris Harrington of Toshiba America Information Systems in Irvine and vice chairman of workforce development at the Orange County Business Council. "The computer is a tool of the knowledge worker and its use has to get into the full range of the population."

A separate report suggests that improvement in this area will require more Hispanics to take high school math and science classes. "Orange County 2007 Community Indicators" reports that among Hispanic students, 11 percent are enrolled in upper level science classes and 20 percent in upper-level math, compared to a countywide average of 20 percent and 33 percent respectively.

"Computer, math and science competency are some of the most important technical skills a student can possess in our knowledge- and computer-driven economy," the report said. "These courses provide the background needed for …many technology-related jobs."

Category

national ranking

Technology in schools

48

% of population online

34

Educational level of immigrants when entering the state

33

Business startups/failures as % of total businesses

28

Source: The Information Technology and Innovation Foundation

Top states

Top states (overall scores) in shifting to the New Economy. California and Colorado have slipped while New Jersey and Maryland have risen in the rankings:

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